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HMRC internal manual

Tax Credits Manual

From
HM Revenue & Customs
Updated
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Payment - overpayments (F-P): overpayments - notional entitlement - household ended as part of Error and Fraud activity

This guidance tells you

  • when notional entitlement may be considered following Error and Fraud interventions
  • how to calculate notional entitlement
  • how to identify if you can apply notional entitlement.

Note: examples of when you might apply notional entitlement are at the end of this guidance.

Note: a decision to apply notional entitlement where there has been compliance activity can only be made by

  • a compliance officer
  • a compliance appeals officer

If the decision was made prior to 18 January 2010 notional entitlement was only considered if the customer made an incorrect claim for tax credits because of a genuine error. Genuine error means the customer must have reasonably thought they had made a correct claim.

Notional entitlement will be available for compliance decisions made prior to 18 January 2010 if it has been established a genuine error was made when the customer made their claim for tax credits.

If we have established the customer

  • subsequently realised their claim was incorrect

or

  • had changes in their circumstances so that they could no longer reasonably believe their claim was correct

they will not qualify for notional entitlement unless they have taken prompt action to inform us about their mistake or change of circumstances.

If the compliance decision was made from 18 January 2010 the decision on whether we will apply notional entitlement will depend on the nature of the error. Further guidance is available in the Compliance Manual detailed below

  • late notification of an in-year change, refer to CCM15730 
  • the old claim was incorrect at the outset, refer to CCM15740 
  • the old claim was originally correct but they failed to notify a change in a previous year and that year has now been finalised, refer to CCM15780 
  • the old claim was originally correct, they then failed to notify a change in a previous year but there has since been another change, refer to CCM15810.

If the claim is compliance terminated as a result of a partner living with the customer when the single claim was made, the claim will be terminated from the day before it was made because it was never a valid claim.

Although the claim must be terminated in this way, not all of the resulting overpayment may be recovered.

Incorrect claim made from the outset

Notional entitlement will be available if it is established that an incorrect claim was made by the customer and the following criteria has been met

  • a new correct claim has now been made
  • the end date for the original award does not cover the period the new claim can be backdated to
  • any decision made prior to 18 January 2010 has confirmed the customer made a genuine error, or
  • any decision made from 18 January 2010 has confirmed the customer has not made a deliberate or repeated error.

Late notification of a change of household and circumstances

We will consider applying notional entitlement to all or part of the overpayment where the customer is late telling us about a partner joining or leaving their household and all of the following apply

  • the change occurred in the current year 
  • a new correct claim has now been made
  • the end date for the original award does not cover the period the new claim can be backdated to and 
  • the change occurred prior to the date for which the new claim is backdated.

Recovery of Overpayments - claim incorrectly made by a couple

A claim may be made by a couple when, in fact, they should have made two separate claims. For these cases, the total overpayment will be the amount of tax credits paid from the date of the claim. The notional entitlement will then be the amount they would each have been entitled to claim had they claimed as single customers.

To arrive at the amount of recoverable overpayment, you must deduct the amounts of notional entitlement from the total overpayment.

If the notional entitlement exceeds the total amount of the overpayment, you must restrict the recovered amount to the amount of the overpayment.

For example: the amount of tax credits paid to the couple is £1,376, but they should not have claimed as a couple. Had they correctly claimed as single customers, they would have been entitled to £2,478 in total. The notional entitlement should be restricted to £1,376, so the balance of the overpayment is £0.00.

Recovery of overpayment - previous claims made by both partners

Where both partners have previously made claims as single customers, there will be two incorrect claims. They will each be responsible for the total overpayment on their incorrect single claims but, from each figure, their share of the notional entitlement can be deducted.

You must calculate the amount they could have claimed as a couple and then allocate this between both customers. How you allocate the balance between the parties will depend on their wishes. If they

  • specifically ask for it to be split in a particular way, you must proceed with their proposal so long as they are both in agreement with this
  • do not say how this should be split or can not agree the split, you must divide the notional entitlement equally between them. However, you can change the split if there is notional entitlement remaining.

For example: in a case where a couple have made two single claims and there is a balance of notional entitlement remaining after applying a 50/50 split. Mr Brown’s overpayment on his single claim was £600 and Miss Green’s was £300. Their notional entitlement as a couple should be £700. If you do a 50/50 split, you would remit £350 against Mr Brown’s overpayment and only £300 on Miss Green’s, leaving a balance of £50. In this case, you would remit £400 against Mr Brown’s overpayment.

The recoverable overpayment on each case will be the difference between their respective total overpayments and their amount of notional entitlement.

Examples of where notional entitlement may be appropriate

The following examples detail where notional entitlement may be appropriate. This list is not exhaustive.

Example 1

Billy is in low-paid work and lives with his mother. He phones the Helpline to ask if he is able to claim WTC and they say he can claim even though he is living with his mother.

Billy fills in the claim form but does not understand what is meant by a partner and completes the claim with his mother’s details, but not her income. His mother also signs the form.

Billy has completed the claim with his mother’s details in error. Therefore, it was treated as a joint claim. As this should have never been a joint claim, all of the tax credits have been paid in error.

Had Billy claimed as a single person he would have received exactly the same amount. The incorrect claim arose out of a genuine error and confusion. You would therefore agree that Billy does not have to repay the overpayment, as notional entitlement will cover the full overpayment.

Example 2

In April 2007, Ellie made a single claim when she began work. In December 2007, she phones the Helpline to notify a change of circumstances as her boyfriend, Tom, has moved in with her that week.

During the conversation, Ellie learns that she has made an incorrect claim. Tom was previously a long-distance lorry driver who was only home on a Friday and Saturday. He is not the father of her children, the house is in her name and she thought she did not need to include him on the claim form.

On 3 December, he had started a new job and will be home each night. Ellie thought this meant the relationship had changed to a permanent one and so she needed to tell HMRC. Ellie and Tom were always a couple, he was simply working away from home on a long-term basis, and they should have made a joint claim.

Ellie made a genuine error resulting in an overpayment of tax credits because she claimed in the wrong capacity.

You would calculate how much the couple would have received had they claimed correctly and only recover the difference.

Example 3

Chloe is 19 and in May 2007, made a single claim when she went back to work after having a baby. In October 2007, Chloe calls at her local Enquiry Centre to say she made a mistake with her claim.

Chloe had married Joe in March 2007 but had not shown him on her claim form because they have not been able to live together. They can not afford a house of their own and neither set of parents will let the other one stay at their house. So they have continued to live with their respective parents whilst they try and save up enough money for a rental deposit.

Chloe only found out she had made an incorrect claim when she was talking to a housing adviser about their chance of getting housing together. Chloe made a genuine mistake resulting in an overpayment of tax credits because she claimed in error.

You would calculate how much the couple would have received had they claimed correctly and only recover the difference.

Example 4

Julia made a claim for tax credits on 18 November 2005. She lives with Ed but she did not put his details on the claim form because he is a student who has no earnings or income. It is a very volatile relationship and so she never knows how long it will last.

She did not think this made her claim incorrect because Ed has no income to take into account. Julia has made incorrect claims for 2005-2006, 2006-2007 and 2007-2008. Although she knew she had a partner, she reasonably believed her award was correct because Ed did not have any income to take into account. Notional entitlement will therefore be available for all the award years.

Examples of where notional entitlement may not be appropriate

The following examples detail where notional entitlement may not be appropriate. This list is not exhaustive.

Example 1

On 16 April 2010, Jan made a claim for tax credits as a single parent. She knew she should have notified HMRC when her partner John moved in with her on 10 June 2010, but she did not notify this until 12 December 2011.

Her single claim should be terminated from 10 June 2010, notional entitlement will not be available and any overpayment on her single claim will be recoverable because Jan notified the change late and the change does not fall within the current year.

Example 2

Lisa has claimed tax credits since April 2008 as a single customer. Tony moved in with her on 21 March 2010. HMRC did not become aware of this change until February 2011.

There will be a small overpayment for 2009-2010 and all of the tax credits paid since 6 April 2010 will be overpaid as Lisa was not entitled to claim as a single person after 21 March 2010.

Notional entitlement will not be available for any of the years because Lisa failed to tell HMRC about the change in her circumstances and it does not fall within the current tax year.

Example 3

In April 2012, you establish Susan claimed tax credits as a single parent from April 2008. Stephen moved in with her on 1 February 2009 and they were living together as husband and wife.

However, Stephen moved out again on 16 June 2010. You accept that Susan and Stephen were only living together as husband and wife between 1 February 2009 and 16 June 2010.

Susan’s award will be terminated from 1 February 2009 because she was no longer entitled to claim as a single person from that date. Therefore, there will be overpayments for 2008-2009, 2009-20010, 2010-2011, 2011-2012

Notional entitlement is not available because Susan failed to tell HMRC about both changes in her circumstances. It does not matter that Stephen moved out again in 2010-2011 because the award should have come to an end on 1 February 2009.